Tuesday, June 26, 2018

Armenia holds rate, still sees need to tighten policy

Armenia's central bank maintained its benchmark refinancing rate at 6.0 percent and its tightening bias by reiterating that it still sees a need to gradually neutralize current stimulative monetary and credit conditions in order to reach its targeted level of inflation. After cutting the repo rate 12 times by a total of 450 basis points from August 2015, the Central Bank of Armenia (CBA) has said since November 2017 that it will be tightening at some point. But inflation remains well below the CBA's 4.0 percent target, falling to an annual rate of 1.6 percent in May from 2.4 percent in April due to lower prices of seasonal goods. CBA said it expects inflation will remain in the lower part of its target range in coming months and then consolidate near 4.0 percent within the forecast horizon. The CBA has a 1.5 percentage point range around its 4.0 percent midpoint target.
Inflation expectations have stabilized over the past year and additional inflationary pressures are not expected in coming months, the central bank said, adding the balance of risks that economic developments and inflation will deviate from its forecasts are more balanced.
Economic activity in Armenia remained relatively high in the first quarter of this year due to higher productive growth in industry, construction and services, the central bank said, accompanied by a strong recovery in domestic demand.
But domestic demand is expected to slow and gradually approach a sustainable level from the second quarter, CBA said.
Armenia's Gross Domestic Product grew by an annual 9.6 percent in the first quarter, down from 11 percent in the fourth quarter of last year.
Since early 2015 the exchange rate of Armenia's dram has been relatively stable and was trading at 482.3 to the U.S. dollar today, up 0.4 percent this year.